Analysis of Politics, Philosophy and Economics from a Marxist Perspective

Sunday, 22 May 2016

Capital III, Chapter 35 - Part 4

An inflow of precious metals occurs during two periods. After a crisis, when economic activity is subdued, and interest rates are low, due to low demand for money-capital, but also in the following period, when economic activity increases, when the rate and mass of profit is rising, so that although the demand for money-capital rises, the supply also rises. Interest rates rise, but remain low.

“This is the phase during which returns come quickly, commercial credit is abundant, and therefore the demand for loan capital does not grow in proportion to the expansion of production. In both phases, with loan capital relatively abundant, the superfluous addition of capital existing in the form of gold and silver, i.e., a form in which it can primarily serve only as loan capital, must seriously affect the rate of interest and concomitantly the atmosphere of business in general.” (p 570-1)

In the following period, interest rates rise to their average level, as prosperity causes wages and input prices to rise, squeezing profits, and thereby causing an increased demand for credit and money-capital relative to supply.

“Under such circumstances, which are reflected precisely in a drain of precious metal, the effect of continued withdrawal of capital, in a form in which it exists directly as loanable money-capital, is considerably intensified. This must have a direct influence on the interest rate. But instead of restricting credit transactions, the rise in interest rate extends them and leads to an over-straining of all their resources. This period, therefore, precedes the crash.” (p 571)

Newmarch, under questioning says,

“In quiet ordinary times the ledger is the real instrument of exchange; but when any difficulty arises; when, for example, under such circumstances as I have suggested, there is a rise in the bank-rate of discount ... then the transactions naturally resolve themselves into drawing bills of exchange, those bills of exchange being not only more convenient as regards legal proof of the transaction which has taken place, but also being more convenient in order to effect purchases elsewhere, and being pre-eminently convenient as a means of credit by which capital can be raised.” (p 571)

In other words, businesses normally conduct their affairs between themselves without need of money, or even often credit. The transactions between them are simply recorded in the firms' ledgers and netted off. In accountancy, such transactions appear in the ledger marked “contra”, meaning that elsewhere there is another transaction, which is linked to it.

But, when firms worry about being paid, or when they need money or credit themselves, they are more likely to require either that their customers pay in cash, or else they issue a bill of exchange, which can either be discounted for cash, or used as collateral to obtain a loan.

About Me

Left school at 16. Became an ASTMS shop steward at 19, and a lifelong trade union activist. Delegate to North Staffs Trades Council 1974-87. Secretary North Staffs Miners Support Committee 1984-5. President North Staffs Trades Council 1985-6 and 1986-7. Delegate to Staffordshire Association of Trades Councils 1985-7. Delegate West Midlands Regional Council of the TUC 1985-7. Secretary Newcastle UNISON 2000-2.
Member of the International Communist League/Workers Socialist League 1974-87.
Went to University as mature student at age of 24. Obtained Joint Honours Degree in Economics and Politics with Philosophy and Statistics, followed by a Post Graduate Certificate in Education.
Labour Party member since 1974. Stoke City Councillor 1983-4, expelled from Labour group 1983, and resigned from Council in 1984 because of refusing to vote for rent and rate rises, and budget cuts. Staffordshire County Councillor 1997-2005.
Assistant Secretary Stoke District Labour Party 1981, and held pretty much every position from Executive member, to Branch Secretary, and Branch Chair.